Life Planning, Your financial goals

Identifying multibagger stocks for SIP

  • What type of stocks should you choose?
  • What is your risk potential?
  • Which sector contains a multibagger?
multibagger

A mutual fund house selects many stocks from different sectors and multibaggercreates a balanced portfolio. This diversification helps mitigating risk but it also polarizes your funds. Once a sector gets hit, the total fund value comes down. You cannot choose to shift away from these stocks and have to wait till it gets better. It is always wise to select a bunch of stocks yourself and bet regularly. There are more than 7000 stocks in BSE & NSE combined. It is like searching a drop in an ocean, tedious but possible. There are several factors on which a stock is screened before qualifying it as a potential multibagger. Given the technological tools we have today, it is a lot easier than it was a decade back. Before searching for a multibagger we must first decide on our risk capacity.

Ask yourself two questions:
How much can I save from my monthly income?
How much can I save from my monthly expenses?

Spend more time on the second question. Make no mistake, I am not asking you to decrease expenses. Just add a little more to your expense each and every time you spend. In other words, tax yourself. Transfer a percentage of the total expense to your trading account (call it an iTax, myTax or whatever you wish) but do it for every transaction you do. It might sound crazy but believe me, it works wonders!! You can either invest this taxed amount in certain stocks or use it as a risk manager when your stock trades lower than previous highs.

Now let’s search for the drop. Our ocean is made of different sectors and all these sectors are dependent on each other in one-way or other. There is no fool-proof way to find an ever bullish sector. Instead, find a visible problem the world is facing today and the sector which is directly related to solving the problem. For example, pollution is an alarming issue throughout the world and it is only getting worse day by day. Many governments have already started taking steps to control pollution in every possible way. Hence, we can find a stock which deals with pollution control. On the same lines is cyber security. Every business is online and all need to be safe. Companies which offer cybersecurity are going to be in demand, hopefully, in the near future. Next challenge will be to square in on a stock in this sector. That is where fundamentals of a company come in handy. Look at few important factors like Market Cap, Book value, P/E vs Industry P/E and Dividend yield. Check the financial trend of the company. Many growing companies report negative net profit but their net sales might still be increasing which is a positive sign. Above all this is the credibility of promoter group; make sure you have read their activities in the market.

To say the least, stocks with lower market cap, trading at a steep discount to book value, having a lower P/E compared to industry P/E with a good dividend history can be picked for long term investments.

Looks like a hefty task?

Do not worry. We will throw light on all these factors in our next article. In the meanwhile, if you want few completely analyzed & researched stocks served on a platter, do Contact Us.

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Vallimanalan is a banking and financial services professional with over nine years experience. As an AMFI certified mutual fund advisor he has spent years helping customers make considerable profits in mutual funds, insurance and sub-niche shares. He has carried out many projects to create awareness against possible fraudulent practices in banks and insurance companies. Currently, runs a ‘not for profit’ service community which addresses the grievances of customers of different BFSI entities. This community takes up issues on behalf of a customer and provides support till it is resolved, through all possible mechanism under legal channels. Topics of interest: Savings/Current account, Mutual funds, Insurance, Credit cards, fraud prevention, Sub-niche stocks, RBI Ombudsman, SEBI Scores

5 Comments

  1. sir,
    plz send 3 or 4 stocks for SIP for long term with good dividend.i have already too much loos in market.

    1. Dear Mr.Vinod Kumar,

      I will suggest few potential multibaggers. It would be better to know your monthly investment amount and risk potential before that. Pls contact us to drop in your details.

  2. I have enough faith on ur research, calculation and level prediction.pl suggest 3-4 multibaggers name ,i shall start investing without any hesitation.

    1. Dear Mr. Debi Prasad Kundu

      Thanks for your faith on us. Pls click on “Contact Us” and share your email id with us.

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